by David Aurelio.
The second quarter of 2018’s earnings season is coming to a close. Now that 96% of the S&P 500’s companies have reported 18Q2 earnings, the index is expected to post the largest second quarter year-on-year (YoY) earnings gains since 10Q2. As the season comes to a close, retailer earnings continue to impress.
Source: I/B/E/S data, Proprietary Research
The S&P 500 has seen 79.5% of companies report 18Q2 earnings above expectations. This is the highest rate of outperformance on record, going back to 1994 Q1. As a result, 18Q2 YoY earnings expectations have risen to 24.7%, which is the highest second quarter earnings growth rate since 10Q2’s 38.8%. While earnings growth for the quarter benefits from tax cuts, the underlying revenue growth of 9.4% shows that there is real fundamental growth within the index.
Source: I/B/E/S data
This quarter the retailing industry group stands out for outperforming expectations. Earnings for the group have come in 16.8% above expectations and earnings are expected to increase 52.7% from the prior year. Revenue came in 1.0% above expectations and is expected to increase 14.0%. A common positive theme among retailers is growth in online business. However, tariffs, freight costs, FX, and wage increases were mentioned as potential headwinds.
Department store Nordstrom Inc. (JWN.N) saw benefits from their online business and an increase in transaction volumes. As a result, the company posted earnings of $0.95 per share, 13.1% above expectations, and up 46.2% from the prior year. Revenue of $4.07 B came in 2.8% higher than estimates and increased 7.2%.
James F. Nordstrom, Nordstrom, Inc. – Executive VP & President of Stores, commented on the changes that online is having on business stating, “In terms of store traffic, we’ve not seen a material change in our store traffic trends for quite a while now, frankly. Certainly, in the last few quarters, it’s been pretty consistent. I think what’s changed, and it has for everybody, is that when a third of your business is done online in any given market, the nature of that traffic is different. A lot of those customers are coming in having already decided what they want to buy because they’ve been shopping on our website, or they’re coming in to get alterations on something they bought on Nordstrom.com or any number of different versions of a digital-to-in-store experience. And so part of our big opportunity is looking at our stores and figuring out how do we need to evolve the staffing model, the layout, the services and experiences that we offer in those stores to continue to be relevant to that customer who spent some time shopping on our website.”
General merchandiser Target Corporation (TGT.N) also benefited from online sales, and reported digital sales growth above 40%. Strong traffic in both in-store and digital helped the Target beat on both the top and bottom line. Revenue of $17.78 M came in 2.7% above estimates and was up 8.2% from the prior year. On the bottom line, earnings of $1.47 per share beat expectations by 5.1% and increased 19.5% YoY. While Target’s overall earnings call was upbeat, Brian C. Cornell, Target Corporation – Chairman & CEO, highlighted concerns related to tariffs stating, “Like many of you, we’ve been carefully monitoring recent tariff announcements, and we’re aware of the potential for this situation to further escalate. As we’ve said many times, as a guest-focused retailer, we’re concerned about tariffs because they would increase prices on everyday products for American families. In addition, a prolonged deterioration in global trade relationships could damage economic growth and vitality in the United States.”
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